Mittwoch, 29. Juni 2011

When property rights in money are poorly defined, negative external effects develop. The institutional setup of the euro, with its poorly defined property rights, has brought it close to collapse and can be called a tragedy of the commons.

Fiat Money and External Costs

External costs and benefits are the result of ill-defined or ill-defended property rights.The proprietor does not assume the full advantages or disadvantages of employing a property. As the actor is not fully responsible for the effects of his actions, he will not take into account all the consequences of his actions.

The actor that does not reap some of the benefits of his actions will not take into account all the positive effects of it. An example of these positive (external) benefits might be an apple-tree owner whose property rights over the apples growing on the tree are not secured. People walking down the street just grab any apples within their reach. This behavior is permitted by the government. The apple-tree owner would probably act differently were he the sole benefactor of the tree. He might not protect the tree against insects, or he might even cut the tree down to burn the wood.

Similarly, the proprietor may incur some external costs. External costs result from the absence of property rights. External costs do not burden the proprietor, but others. The proprietor will engage in some projects he would not have if he had had to assume all costs. An example of external costs would be the owner of a factory that dumps its waste into a public lake. This lake may be privately owned by a third party, but the government does not defend the property rights of the lake's owner because it regards the factory as essential for economic growth. In this scenario the factory owner does not have to assume the full cost of production but can externalize some part of the costs to others by dumping the waste. If the factory owner had to pay for its disposal, however, he would probably act differently. He might produce less, or operate in a more waste-preventing way. Since the property rights of the lake are not well defended or not defined at all (in the case of public property in the lake), the factory owner is released from the responsibility of some of the costs incurred. As a consequence, there is more pollution than would be seen otherwise.

In our present monetary system there are several levels on which property rights are not clearly defined and defended. At a first level, private-property rights are absent in the field of base-money production. The private money, gold, was nationalized during the 20th century. And private money production of commodity moneys belongs to the past.

It is important to point out that under the gold standard there were no external (technological) effects involved in base-money production. Private gold producers incurred substantial costs mining the gold and they reaped the full benefits. It is true that the increase in the gold money supply tended to push up prices and, therefore, involved pecuniary external effects. But an increase in the production of goods affecting the purchasing power of money and relative prices does not imply any private-property violation. Anyone was free to search for and mine gold and could sell it on the market. No one was forced to accept the gold in payment. Moreover, private property in base-money production was defended.

The loss in purchasing power caused by mining brought along redistributive effects. Redistributive effects alone, however, do not imply external effects. Any change in market data has redistributive effects. If the production of apples increases, their price falls, benefiting some people, especially those who like apples. If there is a free-market increase of gold money or apples, there is redistribution, but no bad application of private-property rights and, consequently, no external (technological) costs.

Furthermore, the increase in gold money did not have the negative external effect of decreasing the quality of money. By increasing the number of gold coins, the average metal content of a gold coin was not reduced. Gold could continue to fulfill its purposes as a medium of exchange and a store of value.

During the 20th century, governments absorbed and monopolized the production of money. Private gold money with clearly defined property rights was replaced by public fiat money. This money monopoly itself implies a violation of property rights. Central banks alone could produce base money, i.e., notes or reserves at the central bank. Property rights are also infringed upon because fiat money is legal tender. Everyone has to accept it for debt payments and the government accepts only the legal-tender fiat money for tax payments.

By giving fiat money a privileged position and by monopolizing its production, property rights in money are not defended and the costs of money production are partially forced upon other actors. If no one had to accept public paper money and everyone could produce it, no external costs would evolve. People could simply decide not to accept fiat money or produce it themselves.

The benefits of the production of money fall to its producer, i.e., central banks and their controllers (governments). External costs in the form of rising prices and, in most cases, a lower quality of money are imposed on all users of fiat money. Not only do additional monetary units tend to bid up prices, but the quality of money tends to fall as well. The average quality of assets backing the currency is normally reduced by fiat-money production.

Imagine that 20 percent of the monetary base is backed by gold reserves. If the central bank buys government bonds or mortgage-backed securities, or increases bank lending and increases the supply of fiat base money by 100 percent, the average quality of base money falls. After these expansionary policies, only 10 percent of base money is backed by gold and 90 percent is backed by assets of a lower quality.

The gold-reserve ratio is even relevant if there is no redemption promise. Gold reserves can prop up confidence in a currency and can be used in panic situations to defend the currency. They are also important to have in the case of monetary reforms. In contrast to the fiat-paper situation, where an increase in money supply dilutes the quality of the currency, there is no dilution in the quality of the currency by gold mining. By minting new coins, the quality of previously existing gold coins is untouched.

Due to the infringement on private-property rights in base-money production, governments can profit from base-money production and externalize some costs. The benefits for governments are clear. They may finance their expenditure with the new money through the detour of the central bank. Costs are shifted onto the population in the form of a lower quality of money and a lower purchasing power of money.

The Tragedy of the Commons and Banking

Another layer in the monetary system of ill-defined property rights is the tragedy of the commons in banking. A "tragedy of the commons," a term coined by Garrett Hardin, is a special case of the external-costs problem. As explained above, external costs generally occur when property rights are not well-defined or defended, and when a single privileged owner can externalize costs on others. This is the case of the factory owner being allowed to dump waste in the private lake or the case of the central bank producing legal tender base money supported by the state. In a tragedy of the commons, a specific characteristic is added to the external-cost problem. Not one but several actors exploiting one property can externalize costs on others. Not only one factory owner but many can dump waste into the private lake. Likewise, more than one bank can produce fiduciary media.

The traditional examples for a tragedy of the commons are common properties such as public beaches or swarms of fish in the ocean. They are exploited without regard to the disadvantages that can be partially externalized. Benefits are obtained by numerous users, but some of the costs are externalized. Let us look at the incentives for a single fisherman. By fishing the swarm, the fisherman obtains the benefits in the form of the fish; however, the cost of a reduced size of the swarm is borne by all.

If there were private-property rights that defined the swarm, the swarm's owner would fully assume the costs of reducing its size. The owner would have an interest in its long-term preservation. He would not only own the present use (hunted fish) but also the capital value of the swarm. The owner knows that every fish he catches may reduce the number of fish for the future. He balances the costs and benefits of fishing and decides consequently on the number of fish he wants to catch. He has an interest in the capital value or long-term preservation of the swarm.

The situation changes radically when the swarm is public property. There is an incentive to overfish (i.e., overexploit) the resource because the benefits are internalized and the costs are partially externalized. All benefits go to the fisherman, whereas the damage suffered through the reduction of the swarm is shared by the whole group. In fact, there is the incentive to fish as fast as possible, given the knowledge of the incentives for other fishermen. If I do not fish, another will fish and get the benefits, whereas I bear the costs of the reduced size of the swarm. In a "pure" tragedy of the commons, there are no limits to overexploitation, and the resource disappears as a result.

The concept of the tragedy of the commons can be applied successfully to other areas such as the political system. Hans-Hermann Hoppe applied the concept to democracy. In a democracy there is public entrance into government. In government one gains access to the property of the whole country by using the coercive apparatus of the state. Benefits of appropriation of private property are internalized by the government while costs are borne by the whole population. After one term, other people may gain access to the coercive apparatus. Thus, the incentive is to exploit the privilege to its limits as much as possible while in power.

Another fruitful application of the tragedy of the commons is in the monetary field. In our modern banking system, where property rights are not clearly defined and defended, any bank can produce fiduciary media, i.e., unbacked demand deposits, by expanding credits. At the level of base money, when a single central bank can produce money, there is no tragedy of the commons. Yet, at the level of the banking system, a tragedy of the commons occurs precisely because any bank can produce fiduciary media.

In banking, traditional legal principles of deposit contracts are not respected. It is not clear if bank customers actually lend money to banks or if they make genuine deposits. Genuine deposits require the full availability of the money to the depositor. In fact, full availability may be the reason why most people hold demand deposits. Yet banks have been granted the legal privilege to use the money deposited to them. As such, property rights in the deposited money are unclear.

Banks that make use of their legal privilege and the unclear definition of private-property rights in deposits can make very large profits. They can create deposits out of nothing and grant loans to earn interest. The temptation to expand credit is almost irresistible. Moreover, banks will try to expand credit and issue fiduciary media as much and as fast as they can. This credit expansion entails the typical feature found in the tragedy of the commons — external costs. In this case, everyone in society is harmed by the price changes induced by the issue of fiduciary media.

There are, however, several differences between a fractional-reserve banking system and a tragedy of the commons (like a public fish swarm). In Hardin's analysis, there is virtually no limit to the exploitation of the "unowned" properties that have no clearly defined ownership. Further exploitation of the public resource stops only when the costs become higher than the benefits, i.e., when the swarm is so small that searching for the remaining fish is no longer worthwhile. Likewise, for the fractional-reserve banks on the free market, there are important limits on the issuing of fiduciary media at the expense of clients. This limit is set by the behavior of the other banks and their clients in a free banking system. More specifically, credit expansion is limited since banks, via the clearing system, can force each other into bankruptcy.

Let's assume there are two banks: bank A and bank B. Bank A expands credit while bank B does not. Money titles issued by bank A are exchanged between clients of bank A and clients of bank B. At some point, the clients of bank B, or bank B itself, will demand redemption for the money titles from bank A. Hence, bank A will lose some of its reserves — for instance, gold. As is every fractional-reserve bank, bank A is inherently bankrupt; it cannot redeem all the money titles it has issued. If bank B and its clients demand that bank A redeem the money titles to a degree that it cannot fulfill, bank A must declare bankruptcy.

The clearing system and the clients of other banks demanding redemption set narrow limits on the issuing of fiduciary media. Banks have a certain incentive to restrict expansion of fiduciary media to a greater extent than their rival banks, with the final aim being to force their competitors into bankruptcy. In other words, these banks naturally want to exploit the great profit opportunities offered by the improperly defined property rights, but they can only expand credit to the extent that the risk of bankruptcy is reasonably avoided. Competition forces them to check their credit expansion.

The question now concerns how the banks can increase the profits from credit expansion while keeping the risk of bankruptcy low. The solution, obviously, is to form agreements with each other in order to avoid the negative consequences of an independent and uncoordinated credit expansion. As a result, banks set a common policy of simultaneous credit expansion. These policies permit them to remain solvent, to maintain their reserves in relation to one another, and to make huge profits.

Therefore, the tragedy of the commons not only predicts the exploitation and external costs of vaguely defined private property; it also explains why there is pressure in a free banking system to form agreements, mergers, and cartels. However, even with the forming of cartels, the threat of bankruptcy remains. In other words, the incentive to force competitors into bankruptcy still remains, resulting in the instability of the cartels.

For fractional-reserve banks, there is a great demand for the introduction of a central bank that coordinates the credit expansion of the banking system. The one difference between the tragedy of the commons applied to the environment and the tragedy of the commons applied to a free banking system — limits on exploitation — is now removed by the introduction of the central bank. Hence, according to Huerta de Soto, a true "tragedy of the commons" situation occurs only when a central bank is installed. The banks can now exploit the improperly defined property without restriction.

Even in the most comfortable scenario for the banks, i.e., the installation of a central bank and fiat money, there remain other limits. The central bank may try to regulate bank lending and thereby control and limit credit expansion to some extent. The ultimate check on credit expansion — the risk of hyperinflation — remains as well. In other words, even with the creation of a central bank, there is still a check on the exploitation of private property. In an ideal "tragedy of the commons" situation, the drive is to exploit ill-defined property as quickly as possible and forestall exploitation of other agents. But even with the existence of a central bank that guarantees their solvency, it is not in the interest of the fractional-reserve banks to issue fiduciary media as quickly as possible. To do so could lead to a runaway hyperinflation. The exploitation of the commons must therefore be stretched and implemented carefully.

The overexploitation of public property can be restricted in several ways. The simplest way is a privatization of the public property. private-property rights are finally defined and defended. Another solution is the moral persuasion and education of the actors that exploit the commons. For instance, fishermen can voluntarily restrict the exploitation of the swarm. A further option is the regulation of the commons to restrict the overexploitation of the tragedy of the commons. Hardin calls these regulated commons "managed commons." Government limits the exploitation.

An example is the introduction of fishing quotas that provide every fisherman a certain quota per year. Each receives a monopoly right that he will try to exploit fully. Overexploitation is, thus, reduced and managed. In the case of today's banking system, we have a managed commons. Central banks and banking regulation coordinate and limit the credit expansion of banks. By requiring minimum reserves and managing the amount of bank reserves as well as the interest rates, central banks can limit credit expansion and the external costs of the reduced purchasing power of money.

The Euro and the Tragedy of the Commons

Although the external effects of a monopolistic money producer and a fractional-reserve banking system regulated by a central bank are common in the Western world, the establishment of the euro implies a third and unique layer of external effects. The institutional setup of the Eurosystem in the EMU is such that all governments can use the ECB to finance their deficits.

A central bank can finance the deficits of a single government by buying government bonds or accepting them as collateral for new loans to the banking system resulting. Now we are faced with a situation in which several governments are able to finance themselves via a single central bank: the ECB.

When governments in the EMU run deficits, they issue bonds. A substantial part of these bonds are bought by the banking system. The banking system is happy to buy these bonds because they are accepted as collateral in the lending operations of the ECB. This means that it is essential and profitable for banks to own government bonds. By presenting the bonds as collateral, banks can receive new money from the ECB.

The mechanism works as follows: Banks create new money by credit expansion. They exchange the money against government bonds and use them to refinance with the ECB. The end result is that the governments finance their deficits with new money created by banks, and the banks receive new base money by pledging the bonds as collateral.

The incentive is clear: redistribution. First users of the new money benefit. Governments and banks have more money available; they profit because they can still buy at prices that have not yet been bid up by the new money. When governments start spending the money, prices are bid up. Monetary incomes increase. The higher the deficits become and the more governments issue bonds, the more prices and incomes rise. When prices and incomes increase in the deficit country, the new money starts to flow abroad where the effect on prices is not yet felt. Goods and services are bought and imported from other EMU countries where prices have not yet risen. The new money spreads through the whole monetary union.

In the EMU, the deficit countries that use the new money first win. Naturally, there is also a losing side in this monetary redistribution. Deficit countries benefit at the cost of the later receivers of the new money. The later receivers are mainly in foreign member states that do not run such high deficits. The later receivers lose as their incomes start to rise only after prices increase. They see their real income reduced. In the EMU, the benefits of the increase in the money supply go to the first users, whereas the damage to the purchasing power of the monetary unit is shared by all users of the currency. Not only does the purchasing power of money in the EU fall due to excessive deficits, but interest rates tend to increase due to the excessive demand coming from overindebted governments. Countries that are more fiscally responsible have to pay higher interest rates on their debts due to the extravagance of others. The consequence is a tragedy of the commons. Any government running deficits can profit at the cost of other governments with more balanced budgetary policies.

Imagine, for example, that several individuals possess a printing press for the same fiat currency. These individuals have the incentive to print money and spend it, bidding up prices. The benefits in the form of a higher income accrue to the owners of the printing press, whereas the costs of the action in the form of a lower purchasing power of money are borne by all users of the currency. The consequent incentive is to print money as fast as possible. A printing-press owner who does not engage in printing will see prices rise. Other owners will use the press in order to benefit from the loss in purchasing power that affects other printing-press owners. The owner who prints the fastest makes gains at the expense of the slower printing owners. We are faced with a "pure" tragedy of the commons. There is no limit to the exploitation of the resource. As in the case of public natural resources, there is an overexploitation that ends with the destruction of the resource. In this case, the currency ends in a hyperinflation and a crackup boom.

Although the example of several printing presses for the same currency helps us understand the situation in a visual way, it does not apply exactly to the EMU. But differences between the two setups help explain why there is no pure tragedy of the commons in the Eurosystem and why the euro has not yet disappeared. The most obvious difference is that deficit countries cannot print euros directly. Governments can only issue their own bonds. There is no guarantee that banks will buy these bonds and use them as collateral for new loans from the ECB.

In reality, there are several reasons why the scheme might not work.

1. Banks may not buy government bonds and use them as collateral if the operation is not attractive. The interest rate offered for the government bonds might not be high enough in comparison with the interest rates they pay for loans from the ECB. Governments must then offer higher yields to attract banks as buyers.

2. The default risk on the government bonds might deter banks. In the EMU this default risk has been reduced by implicit bailout guarantees from the beginning. It was understood that once a country introduced the euro, it would never leave the EMU. The euro is quite correctly seen as a political project and a step toward political integration.

The default of a member state and its resulting exit would not only be seen as a failure of the euro, but also as a failure of the socialist version of the European Union. Politically, a default is seen as next to impossible. Most believe that, in the worst case, stronger member states would support the weaker ones. Before it came to a default, countries such as Germany would guarantee the bonds of Mediterranean nations. The guarantees reduced the default risk of government loans from member states considerably.

Implicit guarantees have now become explicit. Greece was granted a rescue package of 110 billion euros from the Eurozone and the International Monetary Fund (IMF). In addition, 750 billion euros have been pledged for further bailouts of other member states.

3. The ECB could decline to accept certain government bonds as collateral. The ECB requires a minimum rating for bonds to be accepted as collateral. Before the financial crisis of 2008, the minimum rating was A–. During the financial crisis, it was reduced to BBB–. If ratings of bonds fall below the minimum rating, government bonds will not be accepted as collateral. This risk, however, is quite low. The ECB will probably not let a country fall in the future, and it has been accommodating with respect to the collateral rule in the past. The reduction of the minimum rating to BBB– was planned to expire after one year. When it became apparent that Greece would not maintain at least an A– rating, the rule was extended for another year. Finally, the ECB, in contrast to its stated principles of not applying special rules to a single country, announced it would accept Greek debt even if rated junk.

4. The liquidity risk involved for banks using the ECB to refinance themselves by pledging government bonds as collateral may deter them. Government bonds are traditionally of a longer term than the loans granted by the ECB. There have traditionally been one-week and three-month loans in ECB lending operations. During the crisis, the maximum term was increased to one year. Nevertheless, most government bonds still have a longer term than ECB lending operations with maturities of up to 30 years. Consequently, the risk is that the rating of the bonds would be reduced over their lifetimes, and that the ECB might cease to accept them as collateral. In this scenario, the ECB would stop rolling over a loan collateralized by government bonds, causing liquidity problems for banks.

The risk of rollover problems is relatively low; the ratings are supported by the implicit bailout guarantee and the political willingness to save the euro project, as has been demonstrated by the sovereign debt crisis. Another side of the liquidity risk is that interest rates charged by the ECB might increase over time. Finally, they could be higher than the fixed rate of a longer term government bond. This risk is reduced by a sufficient interest spread between the yield of the government bond and the interest rates applied by the ECB.

5. Haircuts applied by the ECB on the collateral do not allow for full refinancing. A bank offering a million euros worth of government bonds as collateral does not receive a loan of a million euros from the ECB, but a smaller amount. The reduction depends on the haircut applied to the collateral. The ECB distinguishes five different categories of collateral demanding applying different haircuts. Haircuts for government bonds are the smallest. The ECB, thereby, subsidizes their use as collateral vis-à-vis other debt instruments supporting government borrowing.

6. The ECB might not accommodate all demands for new loans. Banks might offer more bonds as collateral than the ECB wants to supply in loans. Applying a restrictive monetary policy, not every bank offering government bonds as collateral will receive a loan. However, for political reasons, especially the will to continue the euro project, one may expect that the ECB will accommodate such demands, especially if some governments are in trouble. Indeed, the ECB started offering unlimited liquidity to markets during the financial crisis. Any demand for a loan was satisfied — provided sufficient collateral was offered.

Even though we have not seen a pure tragedy of the commons in the Eurosystem, we have come close. With the current crisis, we are actually getting closer due to the ECB's direct buying of government bonds: The ECB announced the direct purchase of the bonds in May of 2010 to save the euro project. If a government has deficits, it may issue bonds that are bought by banks and then by the ECB. Using this method, there is no longer a detour via the lending operations of the ECB. The ECB buys the bonds outright. The new development eliminates the majority of the aforementioned risks for the banking system.

The tragedy of the euro is the incentive to incur higher deficits, issue government bonds, and make the whole euro group burden the costs of irresponsible policies — in the form of the lower purchasing power of the euro. With such incentives, politicians tend to run high deficits. Why pay for higher expenditures by raising unpopular taxes? Why not just issue bonds that will be purchased by the creation of new money, even if it ultimately increases prices in the whole of the EMU? Why not externalize the costs of government spending?

The tragedy of the euro is aggravated by the typical shortsightedness of rulers in democracies: politicians tend to focus on the next election rather than the long-term effects of their policies. They use public spending and extend favors to voting factions in order to win the next election. Increasing deficits delays problems into the future and also in the EU abroad. EMU leaders know how to externalize the costs of government spending in two dimensions: geographically and temporarily. Geographically, some of the costs are borne in the form of higher prices by the whole Eurozone. Temporarily, the problems resulting from higher deficits are possibly borne by other politicians and only in the remote future. The sovereign-debt problems caused by the deficits may require spending cuts imposed by the EMU.

The incentives to run high deficits in the EMU are almost irresistible. As in our printing-press example, only if a country runs higher deficits than the others can it benefit. You have to spin the printing press faster than your peers in order to profit from the resulting redistribution. Monetary incomes must rise faster than the purchasing power of the currency falls.

These tragic incentives stem from the unique institutional setup in the EMU: one central bank. These incentives were not unknown when the EMU was planned. The Treaty of Maastricht (Treatise of the Economic Community), in fact, adopted a no-bailout principle (Article 104b) that states that there will be no bailout in case of fiscal crisis of member states. Along with the no-bailout clause came the independence of the ECB. This was to ensure that the central bank would not be used for a bailout.

But political interests and the will to go on with the euro project have proven stronger than the paper on which the no-bailout clause was been written. Moreover, the independence of the ECB does not guarantee that it will not assist a bailout. In fact and as we have seen, the ECB is supporting all governments continuously by accepting their government bonds in its lending operation. It does not matter that it is forbidden for the ECB to buy bonds from governments directly. With the mechanism of accepting bonds as collateral it can finance governments equally well.

There was another attempt to curb the perverse incentives of incurring in excessive deficits. Politicians introduced "managed commons" regulations to reduce the external effects of the tragedy of the commons. The stability and growth pact (SGP) was adopted in 1997 to limit the tragedy in response to German pressure. The pact permits certain "quotas," similar to fishing quotas, for the exploitation of the common central bank. The quota sets limits to the exploitation in that deficits are not allowed to exceed 3 percent of the GDP and total government debt not 60 percent of the GDP. If these limits had been enforced, the incentive would have been to always be at the maximum of the 3 percent deficit financed indirectly by the ECB. Countries with a 3 percent deficit would partially externalize their costs on countries with lower deficits.

However, the regulation of the commons failed. The main problem is that the SGP is an agreement of independent states without credible enforcement. Fishing quotas may be enforced by a particular state. But inflation and deficit quotas of independent states are more difficult to enforce. Automatic sanctions, as initially proposed by the German government, were not included in the SGP. Even though countries violated the limits, warnings were issued, but penalties were never enforced. Politically influential countries such as France and Germany, which could have defended the SGP, inflicted its provisions by having more than 3 percent deficits from 2003 onward. With a larger number of votes, they and other countries could prevent the imposition of penalties. Consequently, the SGP was a total failure. It could not close the Pandora's box of a tragedy of the commons. For 2010, all but one member state are expected to violate the 3 percent maximum limit on deficits. The general European debt ratio to GDP is 88 percent.

The Tragedy of the Euro and the Case of Greece

The fiscal developments in Greece are paradigmatic of the tragedy of the euro and its incentives. When Greece entered the EMU, three factors combined to generate excessive deficits. First, Greece was admitted at a very high exchange rate. At this rate and prevailing wages, many workers were uncompetitive compared with the more highly capitalized workers from northern countries. To alleviate this problem, the alternatives were to (1) reduce wage rates to increase productivity, (2) increase government spending to subsidize unemployment (by unemployment benefits or early-retirement schemes), or (3) employ these uncompetitive workers directly as public workers. Owing to strong labor unions the first alternative was put aside. Politicians chose the second and third alternatives, which implied higher deficits.

Second, by entering the EMU, the Greek government was now supported by an implicit bailout guarantee from the ECB and the other members of the EMU. Interest rates on Greek government bonds fell and approximated German yields. Consequently, the marginal costs of higher deficits were reduced. The interest rates were artificially low. Greece has experienced several defaults in the 20th century and has known high inflation rates and deficits as well as a chronic trade deficit. Nevertheless, it was able to indebt itself at almost the same rates as Germany, a country with a conservative fiscal history and an impressive trade surplus.

Third, the tragedy of the commons comes into play. The effects of reckless Greek fiscal behavior could partly be externalized to other members of the EMU as the ECB accepted Greek government bonds as collateral for their lending operations. European banks would buy Greek government bonds (always paying a premium in comparison with German bonds) and use these bonds to receive a loan from the ECB at a lower interest rate (currently at 1 percent interest in a highly profitable deal).

Banks bought the Greek bonds because they knew that the ECB would accept these bonds as collateral for new loans. There was a demand for these Greek bonds because the interest rate paid to the ECB was lower than the interest the banks received from the Greek government. Without the acceptance of Greek bonds by the ECB as collateral for its loans, Greece would have had to pay much higher interest rates. In fact, the Greek government has been bailed out or supported by the rest of the EMU in a tragedy of the commons for a long time.

The costs of the Greek deficits were partially shifted to other countries of the EMU. The ECB created new euros, accepting Greek government bonds as collateral. Greek debts were thus monetized. The Greek government spent the money it received from the bonds sale to win and increase support among its population. When prices started to rise in Greece, money flew to other countries, bidding up prices in the rest of the EMU. In other member states, people saw their buying costs climbing faster than their incomes. This mechanism implied a redistribution in favor of Greece. The Greek government was being bailed out by the rest of the EMU in a constant transfer of purchasing power.

BERKELEY – Complaints about the inflationary effects of American monetary policy are rampant, despite there being barely a hint of inflation in the United States. Rapidly growing catch-up economies are paddling furiously to avoid being dragged down by a torrent of capital inflows. Prominent policymakers, desperate for alternatives to America’s malfunctioning monetary system, have gone so far as to allude to a return to the gold standard.

I am not talking about 2011, but about 1964. We have been here before.

Barry Eichengreen is Professor of Economics and Political Science at the University of California, Berkeley and author ofExorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System, published this month.

In 1964, it was the rapidly growing economies of Europe, still catching up to the US, that were howling about the Federal Reserve. As a result of a recklessly expansionary American policy, they argued, they were being flooded with imported finance. The US was “exporting inflation.”

MS. NARDIN: Good afternoon, everybody, and welcome to the press briefing on Europe by the head of the European Department, Antonio Borges. Welcome to all the journalists here in the room and to those of you who are following us on the Web. And to the journalists on our online media briefing center, please do send your questions now, if you want to send questions by e-mail.

Mr. Borges will offer some brief opening remarks, and then I will take your questions. Antonio.

MR. BORGES: Thank you. First of all, thank you very much for your interest. We are here to be helpful, to answer all your questions, to the extent that we can, and to give you our picture of how the Fund sees developments in Europe, and I mean the whole of Europe.

So, let me start with a positive message. We are quite confident with what's happening in Europe. We are actually very pleased with the fact that there is strong economic growth, that many European countries are doing very well—very, very well, in particular in Eastern Europe where there is plenty of growth, surprisingly strong growth, in the core of Europe. There is good growth in Northern Europe, as well. So, overall, we think Europe is on the right track, and this is an important point.

We are also very pleased with contained inflationary expectations with important progress on public finances across Europe in very, very important countries—in the UK, in Italy, in Germany, in France. All of these countries are doing well on the fiscal front. This is all very positive.

And I'd like to insist on a very significant element of structural optimism, which is that Europe still has a lot to gain from further economic integration. What we are seeing, say, in a country like Germany, is plenty of progress in terms of their competitiveness thanks to their ability to take advantage of the whole of Europe, to reorganize their supply chains, become more competitive, and stronger in the world economy. This is a good signal of what's to come as we succeed in integrating better Eastern and Western Europe in a more cohesive continent. So, this is very good, and I'd like to say that we're also pleased to see Europe making institutional progress towards Europe-wide regulatory agencies which will have more and more influence and importance.

So, my key point is that the background is positive, and you often see the Fund wishing that European did more to help themselves, which is important, but what you are doing is already not bad in many ways. We are in the right direction.

Now, clearly, there are also concerns and we are worried about what's happening in Europe on many fronts, of which the most important one is probably the financial sector. The European financial system is still very dependent on the banking sector, many banks are still weak. This is a problem, this is a concern. There is an element of denial in Europe which we object to. And the most frustrating element of this is that we consider this a problem that could be solved. In fact, it is already being solved in quite a few countries where banks are raising capital, are becoming stronger, but not so vigorously resolved elsewhere in Europe. We would insist this is an important priority that would make Europe more robust and provide more potential for economic growth in the future.

And furthermore, although there are quite a few weak banks in Europe, the vast majority of the banks are strong, are well capitalized, are doing well. So, why don't we adopt more European-wide solutions where strong banks take over weak banks and the problem is instantly solved. All of these solutions are on the table, could be on the table, and we could very quickly move forward, not to mention, of course, the institutional element of moving in the direction of European-wide, for example, bank resolution systems, et cetera.

So, this is an area of concern, one in which progress could be made and more determination would be welcome.

And then, of course, we are still concerned with the periphery, with Greece, with Ireland, with Portugal. These countries are experiencing the difficulties that everybody is aware of. We have programs, there are still many challenges to be resolved. We remain confident that things are on track and that we will succeed, but we certainly recognize that the nature of the problem is very different from many other program countries for the IMF. In many other countries, the problem is more easily solved, is more short-term, economies can be quickly turned around. In the cases of these three countries, the problem is more structural. There have been many years of going in the wrong direction. So, now, we have reverse those trends. This is happening but it will not be immediate. It will be a process that will take time.

In particular, in these countries which have to solve their own banking problems, which are severe, and we have to solve the competitiveness issue, without which there won't be economic growth, and long-term debt sustainability cannot be restored.

So, in fact, the amplitude of the challenge is bigger than elsewhere and so we have to-to a certain extent—recognize that programs have to be more ambitious than elsewhere.

Now, this said, let me point to a very important factor. If we were having this conference a year ago, we would be in a much more worried frame of mind. Since a year ago, there has been fantastic progress, in the sense that this crisis is now, in many ways, contained, and it is contained to three countries which are relatively small countries, and this is a very, very important point. As long as we maintain the crisis within small numbers, small countries, a contained element, this is grounds for good optimism about the future, and this is extremely important.

And this is important on a second element, or a second front, which is the reason why the crisis is now much better contained to these three countries is that there has been a great deal of progress, in particular in Spain. Spain was in the same situation as the others a year ago. Today, it's in a different world altogether and the markets recognize this very well, which is extremely reassuring--not that the Spaniards have solved their problems, they have not, but they are on the right track. And if they are on the right track, the markets recognize that, and this is an extremely important point. As soon as the country gets its policy right, the markets are ready to react to that positively, and this makes the whole difference. So, the progress in Spain shows how good policy can achieve good results quickly.

Now, in Greece, in Portugal, and in Spain, we have to deal with a fiscal adjustment that's very serious, very ambitious, sometimes unprecedented. We have to deal with a banking sector that needs to go back to normal operating procedures that needs to finance the economy under normal conditions, and we have to restore competitiveness by making these countries a lot more export-oriented and a lot more open to foreign competition.

Now, this is happening; it is happening slowly. It is happening, actually, quite rapidly in Ireland, but it's something that forces us to be very much on top of the daily reality in the sense that we cannot, under any circumstances, take the eye off the ball.

Now, clearly, relative to a year ago, we are at a point where our programs are at a critical juncture in Greece in Ireland. The governments have begun implementing the measures that we wanted them to. This is well recognized as fundamental in both Greece and Ireland. There is a great deal of determination to make things happen, but we are the most difficult point in the cycle in the sense that all the cost of the adjustment is now being borne by these economies and we have to wait a few more months before they go back to economic growth and begin to see the light at the end of the tunnel. So, this is not the moment to give up or lose determination.

In Portugal, we are now just beginning, the challenge is pretty much the same as elsewhere, and we have a mission on the ground right now discussing what the nature of the program should be.

So, overall, to conclude, let me simply say that, if we are relatively confident about the general outlook in Europe and we'd like to broaden that perspective to include the whole of Europe and to allow you to have a more optimistic view about the whole continent, there are still challenges out there, they are manageable, they can be managed more confidently, they will be managed, but this is not a moment to waiver or to take our eye off the ball, as I said before.

Thank you. Let me have your questions.

QUESTIONER: You mentioned that banking problems could be instantly solved if stronger banks took over weaker banks. Did you mean that on a cross-border basis? Has the IMF ever advocated that in the Irish case, or would you advocate that?

MR. BORGES: Well, I think, first of all, there's plenty of examples—not plenty, but there are some very good examples in Europe, how this can be done.

For example, if you take Belgium where they have a very difficult problem, one of their largest banks, which is Fortis, they solved the problem quite rapidly by asking a very solid, larger international bank, which is BNP Paribas, to take them over. Problem solved instantly, overnight; right?

In Ireland, your own government and your own governor has very often said, foreigners are welcome to invest in Ireland, and that is a very, very positive attitude to the resolution of the crisis to the extent that Irish banks may need more capital, why not allow capital to come from abroad, and this is what I would call a European solution to the problem as opposed to a specifically national solution to the problem.

Now, the Irish problem is a more serious banking problem, so it may not happen instantly, but I'm very pleased that the Irish Government is open to this solution.

QUESTIONER: I would like to ask you about the Ukraine. The Stand-By program is in force but the country hasn't received the third tranche as it was planned. What is going on, on your point of view, and is the country going the right way? Thank you.

MR. BORGES: Well, the Ukraine is, of course, a very important country for us. It's a big country with a large population, huge challenges in front of it, and we are quite supportive of the Ukrainian government. However, the challenges are very, very substantial.

The biggest problem about the Ukraine is on the fiscal front. We would like the government to maintain its targets as agreed in the program. The program contemplated a very significant increase in gas prices, which are very, very highly subsidized and are a very big drain on the budget. The government considers that this is not the right moment to increase gas prices dramatically and they have proposed offsetting measures. So, they are maintaining their commitment to the targets but through several different channels and we're waiting for that. As soon as that is in place, we will go ahead.

QUESTIONER: I would like your comment about the plan of privatization which the Greek government announced a few hours ago. Would you characterize it as realistic?

MR. BORGES: Well, the privatization scenario in Greece is probably one of the best news of the last few months. Greece has a very, very high debt level, and so that's of great concern to all of us. But it's the government with the largest portfolio of assets that can be privatized. So, this is a very important component of the way everybody now looks at Greece.

And within Greece, there are even very reputable think thanks that advise us that, of the portfolio of government assets, a vast tranche could be privatized rather quickly, which is reassuring. According to your own experts, this could be done relatively fast. So, that's, again, very reassuring.

Furthermore, there is now a big price: If you do privatize, the Europeans will be happy to reduce the interest rate by 1 percentage point, which is not meaningless, it's quite significant. So, the stakes are very high here.

Now, we all understand here that privatization is not simple, that the process takes time, that there are always very, very important domestic interests and national interests to be taken into account, that not everything can be privatized, but the amount of assets available for privatization is so large that even simply going for the non-controversial relatively trivial assets that the government could dispose of will already provide a great deal of that relief. So, we are very keen that the government has now embraced this goal, and frankly, it can make an enormous difference in the whole story.

QUESTIONER: Many people are worried that lots of banks, especially in America, but generally are going back to the old way of doing things with derivatives and with large exposures. How worried are you about that? Is it a real problem and is this a time bomb that may have a negative impact on the work that has been done to reestablish the system?

MR. BORGES: Well, obviously, this is not a European-specific problem; right?

QUESTIONER: [Off microphone.]

MR. BORGES: It does have, although, in particular because you are from Italy, it is not a great problem in Italy where the banks are extremely safe from that point of view.

Let me answer quickly. The question is one of balance. Obviously, banks have to deal with risk. The financial system, in general, exists to handle risk and banks have to deal with risk. We don't want banks to run excessive risk, but if you insist that banks don't take any risks at all then there is no banking. So, there is an element of balance, here, and clearly banks took risks that they should never have taken and that led to the great crisis of 2008.

Then, there was a backlash and the real retrenchment and we're going back to the normal way of doing business, which is: let's make sure that we operate as we should with proper risk measures, with proper capital, but without, under any circumstances, taking excessive risk.

So, this is the challenge in front of us. I think we should not look at it lightly and, in particular from the point of view of banking regulation and banking supervision, the level of demand is now a lot higher. But I do not think there is any reason at this point to be excessively concerned about that.

QUESTIONER: First question I had for you is about the political situation in Portugal that you know extremely well. How concerned are you about the difficulty of having two big parties on the eve of the big election agree upon such long-term measures?

MR. BORGES: Well, we have a bit of a problem here for several reasons. Number one, the Fund does not really get involved in domestic politics, so I'm not going to comment about any of this. Number two, we have a policy that nationals should not get involved from their own countries. So, because I am from Portugal, I am not going to be very much involved in the Portugal—in fact, I am going to be distanced from the Portuguese program and I am not going to get involved in Portugal.

Number three, I can only tell you that the Fund is here to help Portugal and there's a mission on the ground right now. They are now beginning to negotiate with the government. Of course, they will negotiate also with all the opposition parties. We have to have broad support because there are elections coming, but that's normal, standard practice on the part of the Fund.

QUESTIONER: I had two quick questions.

First, there are calls from Germany today about the possibility about restructuring debt in Greece. How did you—is this still—any possibility of that happening?

And also, what would you say are the lessons learned by the IMF in the two previous programs, in Ireland and in Greece in terms of what went right, what went wrong, what can be applied to this third program in Portugal? Thank you.

Second point, the view of the Fund is that we would never engage in a program unless we were confident that the problem could be solved, meaning that the debt could be sustainable. So, it is our official and firm view that we are confident that these countries will be able to return to debt sustainability or, in fact, we will be able to establish their debt sustainability and that will be recognized by the markets. So, that is the Fund's official position which has been reaffirmed by our Managing Director repeatedly over the last few days.

Now, what have learned in these programs in Greece and Ireland? That the challenge is quite big and we're not—this is not a simple, old-fashioned program where we put the budget in order and the problem is solved. There are broader issues of competitiveness of the banking system and so forth. So, the program has to be more and more ambitious and probably will take a little longer. As you know, this was already recognized by the Europeans who offered to extend the maturity of the Greek loans. So, I think there is general consensus on this.

QUESTIONER: Mr. Borges, I understand the en masse denials of the IMF and the EU of the possibility of restructuring, but can I ask you something: Can you give me one good reason on why you feel confident that Greece will be able to return to the markets, especially in a very few months, like next year, when they need to raise 30 billion euros, with the spreads over 1,000 points now?

MR. BORGES: Well, there is one good reason, it's the program. The program establishes that Greece will go back to the markets and will be able to confirm debt sustainability, and the program is on track.

I also said that it is not generally recognized—that it may take a little longer. And in fact, maybe it will not be exactly in 12 months down the road, but it will happen; that's our confidence.

And furthermore, keep in mind that, of course, this is all subject to the general precondition that the program will be executed, that the Greeks will do it, but they are doing it. So, far, they are doing it. So, if they don't lose their determination and, from everything we hear from them is that they are very determined to make it happen, I think the program will succeed; we are confident the program will succeed.

And furthermore, keep in mind that when we drafted the program we did not have any of these privatization scenarios in mind. The Greek government, I insist on this, has more than 100 percent of GDP in privatizable assets, more than—it's a complete outlier in Europe and there's nobody else in this situation. So, if there is an important element that's a new element that should reassure us, it's this one. So, we remain confident.

QUESTIONER: Do you think that they will be able, in the next 5 years, to accumulate 50 billion euros, because previous 5 years' attempts have been brought in a maximum of 7 to 8 billion euros? There's major problems in Greece there of understanding what is state property, who owns it, which part of the government owns it. It's a very major problem. So, again, I do not understand your optimism.

MR. BORGES: Good, that's fair. We are in a free country, each one has their own views; okay?

But let me emphasize: We did a study of privatizations across Europe over the last 20 years or so. Plenty of countries privatized more than that, a lot more than that, up to 30 percent of GDP, including countries from Eastern Europe where there was a lot more uncertainty about ownership and about title and the legal status, all of that. So, this can be done. Of course, it has not been done in Greece until now because the Greeks didn't feel the need to do it. But now, the important new element is that the Greek Government accepts the priority that should be attached to this and, you know, privatizations can happen very quickly. In particular, if you decide to get the experts in and if you outsource it and find the right people to make it happen, it can happen very, very quickly, I can assure you.

QUESTIONER: You just mentioned that markets buy policies--such in the Spanish case, so I would like to know why they are not buying that--policies in Ireland and in Greece, because we saw today that the markets are beating very hard these two countries.

And the second quick question is about weak banks in Europe. You have just mentioned very quickly that there are still weak banks in Europe. I would like to know if you can identify a little bit those banks who are listed--that is, if they are in the three big economies, France, Germany, and Italy.

MR. BORGES: Well, on your first point, it's very difficult to time market reactions. As I said, the positive element is that the markets have reacted very significantly to the policy changes in Spain.

And if you let me highlight one point, probably the most decisive element in the Spanish reaction to the crisis is how they dealt with their banking problems, their banking challenges, and how the markets received very well the Spanish approach, which is an approach of transparency, of saying, here are the accounts, here are the numbers, now you make your own judgments. And this movement toward transparency was very well received in the markets, as also in Ireland, incidentally, but especially in Spain.

And you know, another very important is that in Spain many of the banking problems were with the so-called "cajas", the savings banks which were a very serious political problem because they were very much part of the political governance of the country, their links with the local authorities and regional—and yet, the Spaniards managed to solve the problem.

So, in other countries in Europe where the banking problems also have a political dimension, the same solution could be applied as in Spain. So, in a sense, Spain is the model in many ways, and I think the markets recognize that and that is very positive.

Now, I'm not going to tell you in that Country A, B, and C the weak banks are this and that one and the other. I'm telling you the position of the Fund is very clear on this: There is a tail risk in the banking situations in Europe of banks that are not necessarily very big but they are a problem. They are under-capitalized and we're not confident in them, and many of those banks could really solve their problem rather quickly if only they were open to solutions of restructuring which would involve acquisitions, cross-border mergers, and so forth. So, this is really a small problem.

In the U.S., you see this all the time: You have a small bank here in difficulty, a big bank there takes it over and the problem disappears. We have to do more of this in Europe. I mean, we cannot be in a monetary union and not accept European solutions to the problems.

QUESTIONER: I would like to ask you, how do you rate the chances of the current Polish government to bring down--to meet the Maastricht criteria within the next five years.

And the second question regarding the eurozone, what is the risk of the rising interest rates in the eurozone for Spain and what you highlighted as positive that might be a negative.

MR. BORGES: Well, Poland is, of course, an extraordinary case, extraordinary successful case, the only country in Europe that went through this whole series of years without a GDP decline. So, that's a remarkable story, and we're very pleased with Poland. Poland benefits from a Flexible Credit Line from the IMF which is a stamp of approval in the sense that the country has a good economic policy that we're so confident that we give them this credit line. So, all of this is extremely positive.

Frankly, I don't see why they should have a difficulty in meeting the Maastricht criteria given that the country is growing, growing rapidly and, reducing budget deficits—when you are growing it is a lot better than otherwise. So, this is all going in the right direction.

We hope—this is probably the key point—that because of all this success, the Poles don't become complacent and that they really focus on the reforms that are still to be made, that are extremely important on many different fronts, and which will modernize the country quite rapidly.

Poland is integrating rapidly with the rest of Europe. That integration will also involve very important elements of financial integration. We think that the Poles need a very robust financial system, they need to develop their capital markets, need to move in the direction of promoting long-term savings, et cetera. So, in that sense, there's still a lot to be done, and the government should contribute to that with better, more solid public finances, but in an environment of very solid and positive growth, this should not be such a challenge.

MS. NARDIN: Oh, yes on interest rates?

MR. BORGES: Well, interest rates is exactly the same issue. The exchange rate in Poland has been very well managed, very successfully managed, and therefore the degree of risk associated with Poland is now relatively small. So, the interest rates can easily be brought to the European levels, especially as the European interest rates increase –there could be coverage and rather quickly--but for this, the Polish budget deficit has to indeed be reduced.

Now, your question was on the impact of interest rates on the rest of Europe. We have to keep in mind that the interest rates in Europe are extraordinarily low. Nobody can expect interest rates to remain at 1.25 percent; this is just not possible. This would be wrong from the point of view of resource allocation. We can have a discussion about the timing of the increase, should it be sooner, should it be later. Of course, the ECB has all the responsibility here, and I think they know exactly what they are doing. But there is no question that interest rates have to go back to normal sooner or later, let me put it this way: Even if there were no inflationary concerns, it would not be reasonable to expect interest rates to remain where they are today.

What impact will this have on the periphery? I think that's completely secondary. If you are in Greece or Ireland or Portugal or even in Spain, it's not the ECB interest rate that matters, it is the market interest rate which suffers from a huge spread which, in the case of Greece or Portugal, is gigantic, really. And so, reducing that spread has a lot more impact than whatever the ECB will do on their policy rights. So, that's the real question.

Of course, many loans in these countries are linked to the policy rate--at least to the market rate, and will go up--their cost will go up a little, but that is fairly marginal compared with the overall impact of the market interest rates in those countries as determined by the spreads.

QUESTIONER: How should the problem of the corporate taxation in Ireland be resolved?

MR. BORGES: Well, that's an area in which normally the Fund does not have a view, because it's a very political element, extraordinarily controversial, as you know, within Europe. Therefore we don't normally get involved in matters of that nature. The Irish have to manage their budget problem. They should have discretion on how to handle, whether they want to do it on tax or on expense side, whether they want to do it with personal income tax or corporate. That should be their decision and we don't get involved in that kind of controversy, in particular because it is a very difficult one—a very, very difficult one. We recognize that there are elements of great validity on both sides of the argument, so we stay out of it.

QUESTIONER: I wanted to ask something country-specific and then something responding to what you said. Do you know where it was said that Serbia was coming to these Spring Meetings and was seeking some kind of a precautionary deal? I know that may be emerging Europe from your point of view, but do you know where that stands?

And also, you seem to be saying that bank mergers—small banks being bought by big ones sort of unqualifiedly may be a good thing. In some countries people think that local banks are more accountable, that if you move the assets to a faraway headquarters that there's less responsive. What do you say to that critique and is that something that the IMF takes any account of?

MR. BORGES: Well, first of all, on Serbia, of course, it is a country that we follow very closely. I cannot tell you exactly where things are in terms of eventually a program for Serbia of one kind or another, the initiative is always on the side of the country, so we have to wait for their positions.

We look forward to close cooperation because Serbia has many, many challenges. We believe there is an intention to move in the direction of the European Union and to negotiate to become a candidate for the European Union; that's a major step for Serbia. So, all of this represents very big challenges and we are behind Serbia in this in helping them move in the right direction. So, no question about this.

Second, on the merger solution, this is—you ask a very interesting question, because this is a problem we were faced with over the last few years. In many of the countries of emerging Europe, you find banks that actually are owned by other banks elsewhere and there were concerns that, as there might be problems in the domestic countries of those banks that assets would be pulled out from emerging Europe and they might suffer. And the Fund, the IMF, invested quite a bit of effort to organize a coordinated effort on the part of all these banks to behave in the best possible interests of those economies, and I must say this was quite successful, because as a result, these countries are now recovering very well and their banks are operating well. So, if anything, the experience of emerging Europe demonstrates that having large, solid banks operate in your country may be an important source of stability if things are properly managed.

QUESTIONER: Do you think that Portuguese banks are a problem?

MR. BORGES: As I'm telling you, I cannot answer questions on Portugal as a matter of policy, so I apologize for that.

But for those of you who have an interest in Portugal, the Managing Director gave an interview yesterday, which is available on the Web, and you can certainly get the view of the Fund on these matters.

QUESTIONER: Do you think that Greece actually still has the leeway to take on any of the contingent banking liabilities that it's guaranteeing at the moment?

MR. BORGES: I'm sorry?

QUESTIONER: Do you think that Greece still has the--

MR. BORGES: Leeway?

QUESTIONER: --the arithmetical freedom as regards debt sustainability, to take on any of the contingent banking liabilities that it's guaranteeing at the moment?

There's a sense that Greece has used up all its room for maneuver on fulfilling the program and everything, and if you wanted to recapitalize Greek banks from now, there's no point in putting extra debt onto the sovereign balance sheets trying to solve that problem because nobody is going to believe that sovereign debt would be sustainable if you do so.

MR. BORGES: Yes. As I said, initially, the problem in all these countries is there is very little distinction between sovereign debt and bank debt, given that these are so intricately connected.

Now, in the case of Greece, let me tell you that we are actually quite pleased with what's happening with Greek banks because they have been able to recapitalize thanks to a very determined focus on their core business, a sale of assets including sometimes some very lucrative assets that they had abroad.

And so, we are very pleased with the general trend of what's happening. There are still challenges. There are still banks that need resolution. Our recommendation is that the Greek government should seek European solutions to these problems, but until now, things have gone very well, actually.

MS. NARDIN: Okay. I think this concludes the press conference on Europe. Do you want to say a few words?

MR. BORGES: Yes. For those of you who maintain an interest in Europe, we publish an Economic Outlook for Europe, which is our most important publication in the European Department and that will come out on the 12th of May. There will be a press conference in Frankfurt and then followed by additional conferences in London, Warsaw, and elsewhere in Europe. So, stay tuned, that there will be quite interesting messages there so that you have a better grasp of what's the Fund's vies on Europe.